2015 (9) TMI 224 - AT - Income Tax

Disallowance of depreciation - CIT(A) allowed the claim - Held that - It is to be seen that the CIT(A) has only restored the issue back to the Assessing Officer for factual verification as to whether the assesssee has already considered the very depreciation in its computation not as so as to avoid double disallowance. The assessee places before us the Assessing Officer s consequential order dated to be 22/02/2010 wrongly mentioned expressly stating CIT(A) s order under challenge. The impugned disallowance on account of depreciation of ₹ 8,62,13,944/- stands deleted in the said order. The Revenue s grievance is rendered infructous. Its corresponding ground accordingly fails. - Decided against revenue. Other income not deducted u/s. 10B - Held that - There is no dispute that this sum of ₹ 8,24,522/- has arisen from insurance claim of exported goods, purchase material discounts and other income of ₹ 7,41,717/-, ₹ 81,706/- and ₹ 1,099/-; respectively. The CIT(A) accepts assessee s arguments and holds that the same is directly linked to its business in question as per the tribunal s order in case of Aarti Industries 2005 (2) TMI 428 - ITAT AHMEDABAD-C . The Revenue fails to rebut these findings of fact and law by quoting cogent material or case law to the contrary. We observe in these facts that these amounts lead to reduction in purchase price of the corresponding material purchased for the purpose of business only. The CIT(A) s findings under challenge are affirmed.- Decided against revenue. Sec. 10B deduction claimed on interest received on late recoveries from customers by assessee - Held that - The assessee is otherwise entitled for sec. 10B deduction being a newly established hundred percent export oriented undertaking. This statutory provision grants deduction of such profits and gains as are derived from a hundred percent export oriented undertaking from export of articles or things or computer software. The assessee s stand throughout is that this interest sum of ₹ 20,82,239/- has arisen from late payments of export proceeds only from overseas export customers. Even the CIT(A) observed that the impugned interest can be treated to have been derived from industrial undertaking since the same is received from debtors is part of profits, but not derived from exports. We disagree with this reasoning as the interest has been derived from export proceedings of the eligible business unit only. We refer Nirma Industries Ltd case (2006 (2) TMI 92 - GUJARAT High Court ) in this backdrop of facts and hold that assessee s interest sum of ₹ 20,82,239/- realized from its export customers on account of delayed payments of export proceeds forms part thereof only so as to be entitled to be treated as eligible profits and gains from export business only as the same is not an independent receipt - Decided in favour of assessee.

Summary

Issues Involved:
1. Restoration of depreciation disallowance/addition of Rs. 8,62,13,944.
2. Addition of Rs. 8,24,522 on account of other income.
3. Validity of reopening and section 10B deduction on interest of Rs. 20,82,239 received on late recoveries from customers.

Detailed Analysis:

1. Restoration of Depreciation Disallowance/Addition of Rs. 8,62,13,944:

The Revenue argued for the restoration of depreciation disallowance of Rs. 8,62,13,944, stating that the assessee did not add the entire book depreciation while computing business income. The assessee contended that the depreciation for the Export-Oriented Unit (EOU) was already deducted from the profit and, hence, no further addition was necessary. The CIT(A) directed the Assessing Officer to verify if the book depreciation was considered in the section 10B computation. If so, no further addition should be made. The Tribunal noted that the CIT(A) had only restored the issue back for factual verification and observed that the impugned disallowance on account of depreciation was deleted in the Assessing Officer's consequential order. Hence, the Revenue's grievance was rendered infructuous, and the corresponding ground failed.

2. Addition of Rs. 8,24,522 on Account of Other Income:

The Revenue's second ground concerned the addition of Rs. 8,24,522 on account of other income, which included insurance claims, purchase discounts, and other miscellaneous income. The Assessing Officer disallowed the deduction under section 10B, arguing that this income did not arise from the export of articles. The CIT(A) found that these incomes were directly linked to the business and reduced the cost of purchases, thus forming part of the business income. The Tribunal affirmed the CIT(A)'s findings, noting that the Revenue failed to rebut these findings with cogent material or case law. The Tribunal upheld the CIT(A)'s decision to allow the deduction under section 10B for these incomes.

3. Validity of Reopening and Section 10B Deduction on Interest of Rs. 20,82,239:

The assessee challenged the validity of the reopening and claimed section 10B deduction on interest of Rs. 20,82,239 received on late recoveries from customers. The lower authorities held that the interest did not arise from the eligible business. The CIT(A) observed that the interest could be considered part of the profits of the industrial undertaking but not derived from exports. The Tribunal disagreed with this reasoning, noting that the interest was derived from export proceedings of the eligible business unit. Referring to the jurisdictional High Court's decision in Nirma Industries Ltd., the Tribunal held that the interest realized from export customers on delayed payments forms part of the eligible profits and gains from export business. Consequently, the assessee's arguments on merits succeeded.

Conclusion:

The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed. The Tribunal pronounced the order in the open court on 26-08-2015.